The Baffling Disappearance of M&A

The mergers went and disappeared. Sure, Monday marks the beginning of an auction for Onyx Pharmaceuticals (ONXX), one of the best biotechs out there. This is a deal that will lead to huge value created for the shareholders of this amazing firm -- and maybe it will herald the beginning of a new wave of deals in a market starved for mergers and acquisitions.

Somehow, though, I don't think so. The Onyx deal, borne of the lack of growth at its initial suitor, Amgen (AMGN), should be a wake-up call to all of the firms like Amgen out there: Get your act together, and find a company that can make your shareholders richer when you acquire it.

However, that doesn't seem to be the way of the world. In fact, it's the opposite. There's been this remarkable groupthink that acquisitions have led to failed enterprises, and that the best gains are happening via break-ups -- not by adding on to the institution.

But compare that negative impression with the reality that's before us. Last week, ConAgra (CAG) reported earnings, and it was a beautiful thing -­- CEO Gary Rodkin's insistence on buying Ralcorp produced far more bottom-line benefit than anyone had thought, especially this early on in the consummation. ConAgra was able to break the gravitational pull of the 10-year Treasury bond, which had taken down many of the bond-market-equivalent stocks with its newly high yield. At ConAgra, the earnings were so strong that they allowed people to consider that more dividend boosts were on the horizon. That's how quickly this company has been able to pay down debt from the robust earnings.

We saw the same thing, on a smaller scale, in the packaged-goods business, when B&G Foods (BGS) bought Pirate's Booty. This was a large acquisition for an acquisitive company with a terrific track record in revitalizing older brands that previous ownership could no longer improve upon.

Or consider the amazing appreciation of Tenet Health (THC) on its acquisition of rival Vanguard Health Systems, or the huge run in the stock of Actavis (ACT) after it acquired Warner Chilcott in an all-stock deal.

Can't other companies see this transformation? Are the M&A bankers so inept at being able to sell these kinds of deals to the CEOs of potential acquirers? What are these putative buyers scared of? I can't think of a deal that has brought down the stock of an acquirer, though we have seen many that have done the opposite this year.

I know that many of the top bosses feel stocks have run too much, and that the targets are no longer attractive. But, in each of the above cases, the stocks of the targets had appreciated or the prices had risen in the private markets. What was needed was growth in institutions that were flagging -- as is currently the case with Amgen. Over the years, this company has fallen behind rivals Celgene (CELG), Gilead (GILD) and Biogen (BIIB), all of which have been extremely acquisitive. In some cases, they had been criticized for spending too much on what turned out to be -- as in the case with Gilead and Pharmasset -- a brilliant acquisition.

Let Amgen's lesson be an inspiration to all management teams. It is so clear that, if the acquirer had found the right price, its stock would have risen greatly today. If you don't have growth, you can buy it -- and, as we saw with Conagra, B&G, Tenet and Actavis, the marker will applaud, not boo, your efforts.

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